Half-year Report

22 September 2016, 07:00

Source - BUS

Half-year Report

Mainstay Medical

Mainstay Medical Announces Half Year Financial Results

Mainstay Medical International plc (“Mainstay”, “We” or the “Company”,
Euronext Paris: MSTY.PA and ESM of the Irish Stock Exchange: MSTY.IE), a
medical device company focused on bringing to market ReActiv8®,
an implantable neurostimulation system to treat disabling Chronic Low
Back Pain (“CLBP”), today announces the publication of its report
for the Half Year ended 30 June 2016.

Highlights

On 14 September 2016, Mainstay announced the enrollment of the first
subject in the ReActiv8-B Clinical Trial. The purpose of the
ReActiv8-B Clinical Trial is to gather data in support of an
application for pre-market approval (“PMA”) from the US Food and Drug
Administration (“FDA”), a key step towards commercialization of
ReActiv8 in the US. The Clinical Trial, if successful, will provide
Level 1 Evidence of efficacy of ReActiv8, which may be used to support
applications for favorable reimbursement in the USA. In addition,
evidence from the ReActiv8-B Clinical Trial will be used to support
market development activities worldwide.

On 25 May 2016, Mainstay announced the receipt of CE Marking approval
for ReActiv8. The CE Marking approval is based on positive results
from the ReActiv8-A Clinical Trial which demonstrated clinically
important, statistically significant and lasting improvement in pain,
disability and quality of life in people with disabling chronic low
back pain and few other treatment options. On 20 September 2016 we
announced the one-year results from the ReActiv8-A Clinical Trial,
which showed long term sustained performance.

Our commercial launch of ReActiv8 is focused on Germany. We aim to
drive adoption of ReActiv8 in a select number of hospitals with a
large population of patients with chronic low back pain and with a
multi-disciplinary approach to treatment. Our initial customers in
Germany (neurosurgeons and orthopedic spine surgeons) have been
trained, contract negotiations are well under way, and ethics
committee submissions have been made for the ReActiv8-C Registry. We
have recruited a direct sales force, which is supported by our team of
experienced field clinical specialists. As we gain experience and
momentum, we will expand our commercialization efforts to other
countries and centers.

On 17 June 2016, Mainstay announced the completion of a private
placement of €30 million (approximately $33.7 million) through a
placement of 2,307,694 new ordinary shares with new and existing
shareholders.

In February 2016, a new US Patent was issued bringing the total number
of issued US Patents in the Mainstay portfolio to seven.

Operating expenses were $8.0 million ($6.3 million in 1H15) and the
increase was primarily driven by expansion of our team, preparation
for the ReActiv8-B Clinical Trial and preparation for our commercial
launch.

Cash on hand at 30 June was $42.8 million and operating cash out flows
for the period were $7.5 million.

About Mainstay

Mainstay is a medical device company focused on bringing to market an
innovative implantable neurostimulation system, ReActiv8®,
for people with disabling Chronic Low Back Pain (CLBP). The Company is
headquartered in Dublin, Ireland. It has subsidiaries operating in
Ireland, the United States, Australia and Germany, and its ordinary
shares are admitted to trading on Euronext Paris (MSTY.PA) and the ESM
of the Irish Stock Exchange (MSTY.IE).

CAUTION – in the United States, ReActiv8 is limited by federal law to
investigational use only.

About the ReActiv8-C Registry

The ReActiv8-C Registry is an international, multi-center, data
collection registry. All patients who will be implanted with ReActiv8
during commercialization will be invited to enroll in the ReActiv8-C
Registry until the target enrollment numbers have been reached. The
purpose is to gather additional summary data on the long term
performance of ReActiv8 in at least 50 patients.

About Chronic Low Back Pain

One of the recognized root causes of CLBP is impaired control by the
nervous system of the muscles that dynamically stabilize the spine in
the low back, and an unstable spine can lead to back pain. ReActiv8 is
designed to electrically stimulate the nerves responsible for
contracting these muscles and thereby help to restore muscle control and
improve dynamic spine stability, allowing the body to recover from CLBP.

People with CLBP usually have a greatly reduced quality of life and
score significantly higher on scales for pain, disability, depression,
anxiety and sleep disorders. Their pain and disability can persist
despite the best available medical treatments, and only a small
percentage of cases result from an identified pathological condition or
anatomical defect that may be correctable with spine surgery. Their
ability to work or be productive is seriously affected by the condition
and the resulting days lost from work, disability benefits and health
resource utilization put a significant burden on individuals, families,
communities, industry and governments.

The Company will host a live conference call for analysts and investors
at 3:00pm Dublin time (4:00pm Paris, 10:00am New York) on the day. The
call will be conducted in English and a replay will be available for 30
days.

Dial-ins for the call are outlined below:

Ireland Toll Free Number:

1800 931 806

France Toll Free Number:

0805 111 542

Finland Toll Free Number:

0800 778 968

Netherlands Toll Free Number:

0800 023 3590

Germany Toll Free Number:

0800 101 4051

USA Toll Free Number:

1866 793 4273

International Non Toll Free Number:

+44 203 425 3098

Passcode:

849195#

Forward looking statements

This announcement includes statements that are, or may be deemed to be,
forward looking statements. These forward looking statements can be
identified by the use of forward looking terminology, including the
terms “anticipates”, “believes”, “estimates”, “expects”, “intends”,
“may”, “plans”, “projects”, “should”, “will”, or “explore” or, in each
case, their negative or other variations or comparable terminology, or
by discussions of strategy, plans, objectives, goals, future events or
intentions. These forward looking statements include all matters that
are not historical facts. They appear throughout this announcement and
include, but are not limited to, statements regarding the Company’s
intentions, beliefs or current expectations concerning, among other
things, the Company’s results of operations, financial position,
prospects, financing strategies, expectations for product design and
development, regulatory applications and approvals, reimbursement
arrangements, costs of sales and market penetration.

By their nature, forward looking statements involve risk and uncertainty
because they relate to future events and circumstances. Forward looking
statements are not guarantees of future performance and the actual
results of the Company’s operations, and the development of its main
product, the markets and the industry in which the Company operates, may
differ materially from those described in, or suggested by, the forward
looking statements contained in this announcement. In addition, even if
the Company’s results of operations, financial position and growth, and
the development of its main product and the markets and the industry in
which the Company operates, are consistent with the forward looking
statements contained in this announcement, those results or developments
may not be indicative of results or developments in subsequent periods.
A number of factors could cause results and developments of the Company
to differ materially from those expressed or implied by the forward
looking statements including, without limitation, the successful launch
and commercialization of ReActiv8, the progress and success of the
ReActiv8-B Clinical Trial,general economic and business
conditions, the global medical device market conditions, industry
trends, competition, changes in law or regulation, changes in taxation
regimes, the availability and cost of capital, the time required to
commence and complete clinical trials, the time and process required to
obtain regulatory approvals, currency fluctuations, changes in its
business strategy, political and economic uncertainty. The
forward-looking statements herein speak only at the date of this
announcement.

Half Year Report 2016

Mainstay Medical International plc and its subsidiaries

Half Year Report comprising Interim Management Report and
condensed consolidated Financial Statements for the half year ended
30 June 2016

Mainstay Medical International plc

Table of contents

Corporate and shareholder information

3

Interim Management Report

4

Directors’ Responsibilities Statement

7

Condensed consolidated statement of profit or loss and other
comprehensive income

8

Condensed consolidated statement of financial position

9

Condensed consolidated statement of changes in shareholders’ equity

10

Condensed consolidated statement of cash flows

11

Notes to the condensed consolidated Financial Statements

12

Forward looking statements

This Report includes statements that are, or may be deemed to be,
forward looking statements. These forward looking statements can be
identified by the use of forward looking terminology, including the
terms “anticipates”, “believes”, “estimates”, “expects”, “intends”,
“may”, “plans”, “projects”, “should”, “will”, or “explore” or, in each
case, their negative or other variations or comparable terminology, or
by discussions of strategy, plans, objectives, goals, future events or
intentions. These forward looking statements include all matters that
are not historical facts. They appear throughout this Report and
include, but are not limited to, statements regarding the Company’s
intentions, beliefs or current expectations concerning, among other
things, the Company’s results of operations, financial position,
prospects, financing strategies, expectations for product design and
development, regulatory applications and approvals, reimbursement
arrangements, costs of sales and market penetration.

By their nature, forward looking statements involve risk and uncertainty
because they relate to future events and circumstances. Forward looking
statements are not guarantees of future performance and the actual
results of the Company’s operations, and the development of its main
product, the markets and the industry in which the Company operates, may
differ materially from those described in, or suggested by, the forward
looking statements contained in this Report. In addition, even if the
Company’s results of operations, financial position and growth, and the
development of its main product and the markets and the industry in
which the Company operates, are consistent with the forward looking
statements contained in this Report, those results or developments may
not be indicative of results or developments in subsequent periods. A
number of factors could cause results and developments of the Company to
differ materially from those expressed or implied by the forward looking
statements including, without limitation, the successful launch and
commercialization of ReActiv8, the progress and success of the
ReActiv8-B Clinical Trial, general economic and business conditions, the
global medical device market conditions, industry trends, competition,
changes in law or regulation, changes in taxation regimes, the
availability and cost of capital, the time required to commence and
complete clinical trials, the time and process required to obtain
regulatory approvals, currency fluctuations, changes in its business
strategy, political and economic uncertainty. The forward-looking
statements herein speak only at the date of this Report.

The Board of Directors are pleased to report on the progress of Mainstay
Medical International plc (“Mainstay” or the “Company”) and present the
Half Year Report of the Company and its subsidiaries (the “Group” or
“we”) for the half year ended 30 June 2016.

Principal activities

Mainstay is a medical device company focused on bringing to market
ReActiv8®, a new implantable neurostimulation system to treat
disabling Chronic Low Back Pain (“CLBP”).

The Company is incorporated in Ireland as a public limited company. The
Company’s ordinary shares are listed on the ESM of the Irish Stock
Exchange and Euronext Paris.

As at 30 June 2016, the Company together with its operating subsidiaries
Mainstay Medical Limited, Mainstay Medical Distribution Limited,
Mainstay Medical GmbH, MML US, Inc. and Mainstay Medical (Australia)
Pty. Limited form the Mainstay Medical Group.

Business review

ReActiv8-B Clinical Trial –On 14 September 2016,
Mainstay announced the enrolment of the first subject in the ReActiv8-B
Clinical Trial. The purpose of the ReActiv8-B Clinical Trial is to
gather data in support of an application for pre-market approval (“PMA”)
from the US Food and Drug Administration (“FDA”), a key step towards
commercialization of ReActiv8 in the US. The Clinical Trial, if
successful, will provide Level 1 Evidence of efficacy of ReActiv8, which
may be used to support applications for favorable reimbursement in the
USA. In addition, evidence from the ReActiv8-B Clinical Trial will be
used to support market development activities worldwide.

The design of the Clinical Trial requires data from 128 randomized
subjects in the Pivotal Cohort at the 120-day primary outcome assessment
visit. Based on experience with enrolment in the ReActiv8-A Clinical
Trial, it is estimated that full enrolment in the ReActiv8-B Clinical
Trial will take 12 to 18 months from first enrolment, with results
anticipated to be available approximately six months following full
enrolment.

CE Marking and Initial Commercial Launch –On 25
May 2016, Mainstay announced the receipt of CE Marking approval for
ReActiv8. The CE Marking approval is based on positive results from the
ReActiv8-A Clinical Trial which demonstrated a clinically important,
statistically significant and lasting improvement in pain, disability
and quality of life in people with disabling chronic low back pain and
few other treatment options.

Our commercial launch of ReActiv8 is focused on Germany. We aim to drive
adoption of ReActiv8 in a select number of hospitals with a large
population of patients with chronic low back pain and with a
multi-disciplinary approach to treatment. Our initial customers in
Germany (neurosurgeons and orthopedic spine surgeons) have been trained,
contract negotiations are well under way, and ethics committee
submissions have been made for the ReActiv8-C Registry. We have
recruited a direct sales force, which is supported by our team of
experienced field clinical specialists. As we gain experience and
momentum, we will expand our commercialization efforts to other
countries and centers.

Funding – On 17 June 2016, we announced the completion of
a private placement of €30 million (approximately $33.7 million) through
a placement of 2,307,694 new ordinary shares with new and existing
shareholders (the “Placement”).

On 11 August 2016, we announced the publication of a prospectus (the
“Prospectus”) in connection with the Placement. The Prospectus comprises
a Summary Document, a Securities Note and a Registration Document. These
documents are available on our website (www.mainstay-medical.com).

The Group’s debt facility provided by IPF was announced on 24 August
2015 for up to $15 million. As at 30 June 2016, the Group had drawn down
$10.5 million. During July 2016, we received the last tranche of $4.5
million.

US Patents -In February 2016, one new US Patent
was issued (listed below), which brings the total number of issued US
Patents in the Mainstay portfolio to seven:

U.S. Patent No. 9,248,278 entitled “Modular Stimulator for Treatment
of Back Pain, Implantable RF Ablation System and Methods of Use”.

Corresponding applications have been filed for other countries. Mainstay
continues to add to its portfolio of issued patents and pending patent
applications.

ReActiv8-A Clinical Trial –The ReActiv8-A Clinical Trial
is an international, multi-center, prospective, single arm Clinical
Trial of ReActiv8, for the purpose of gathering data to form part of the
submission for CE Mark approval. We announced the results of the first
46 subjects in this Clinical Trial to reach the 90-day end point in
August 2015, and additional data were announced in December 2015 and
September 2016. On 20 September 2016 we announced the one-year results
from the ReActiv8-A Clinical Trial, which showed long term sustained
performance.

The results show clinically important, statistically significant and
lasting improvement in pain, disability and quality of life in a
population of people with few treatment options. As detailed above, the
submission for CE Mark approval included the results of the ReActiv8-A
Clinical Trial.

As part of the CE Marking approval process, we agreed to conduct a range
of activities to gather additional data on the long term performance and
safety of ReActiv8. The ReActiv8-A Post Market Clinical Follow-up (PMCF)
Study is a continuation of the ReActiv8-A Clinical Trial (but with CE
Marked ReActiv8).

ReActiv8-C Registry – In addition to the ReActiv8-A PMCF
Study, the Company will conduct a registry. The ReActiv8-C Registry is
an international, multi-center, data collection registry. All patients
who will be implanted with ReActiv8 during commercialization will be
invited to enroll in the ReActiv8 Registry until the target enrollment
numbers have been reached. The purpose is to gather additional summary
data on the long term performance of ReActiv8 in at least 50 patients.

Financial review

Income Statement – Mainstay is at a pre-revenue stage.
Operating expenses related to on-going activities were $8.0 million
during the half year ended 30 June 2016 (30 June 2015: $6.3 million).
On-going activities include clinical and regulatory activities, research
and development, preparation for our initial commercial launch and
general and administrative activities. The increase of $1.7 million is
primarily driven by expansion of our team, preparation for our
commercial launch and preparation for the ReActiv8-B Clinical Trial.

Research and development expenses reflect costs incurred for research,
ongoing development and design of the Group’s product ReActiv8 and
related accessories. These expenses include the salaries of engineers,
technicians, quality and regulatory specialists; the cost of outsourced
early-stage development and manufacturing activities; biocompatibility
and pre-clinical studies; and quality costs including the set-up and
maintenance of our quality system. Research and development expenses
also include the costs of developing and maintaining our intellectual
property portfolio, including legal costs and associated filing and
maintenance fees. Research and development expenses were $1.6 million
during the half year ended 30 June 2016 (30 June 2015: $1.2 million).
The increase of $0.4 million is primarily driven by expansion of our
team.

Clinical and regulatory expenses relate to the ongoing ReActiv8-A
Clinical Trial, and preparation for the ReActiv8-B Clinical Trial. Also
included in clinical and regulatory expenses are expenses relating to
clinical consulting; regulatory consulting; and, salary costs for our
clinical team members. All clinical and regulatory costs are expensed as
incurred. We expect clinical and regulatory expenses to increase
significantly when enrollment in the ReActiv8-B Clinical Trial ramps up,
as further subjects continue to be recruited, as we collect data for
both clinical trials, and as we undertake post market clinical follow-up
activities. Clinical and regulatory expenses were $2.6 million during
the half year ended 30 June 2016 (30 June 2015: $2.3 million). The
increase of $0.3 million is primarily driven by increased consulting and
clinical costs as we prepare for the ReActiv8-B Clinical Trial.

General and administration expenses consist of salaries and other
related costs for personnel in executive, commercial, finance and legal
functions. Commercial costs consist primarily of consulting and related
costs. General and administration expenses include the professional fees
for accounting, audit and legal services; general and facilities costs
such as rent; insurances and IT costs.

Commercial activities to date have been focused on the development of
the Group’s commercial strategy and on planning and managing the process
to obtain reimbursement for the Group’s products after regulatory
approvals have been obtained and the products become available to be
sold commercially. Commercial expenses are expected to increase with the
expansion of our resources to include new personnel in a direct sales
team as we move toward commercialization in Germany. General and
administration expenses were $2.9 million during the half year (30 June
2015: $2.0 million). The increase of $0.9 million is primarily driven by
expansion of our team, and expenditure on activities for our initial
commercial launch.

Non-cash expense in relation to share options for the half year ended 30
June 2016 was $0.9 million (30 June 2015: $0.8 million). This increase
is primarily due to grants of additional options to employees and
consultants.

Statement of financial position – On 17 June 2016, we
announced that we had raised gross proceeds of €30 million
(approximately $33.7 million) through a placement of 2,307,694 new
ordinary shares with new and existing shareholders (the “Placement”).
Transaction costs of approximately $1 million have been allowed for and
have been offset against retained earnings (in accordance with the
Company’s Act 2014).

Following CE Marking approval which was received by the Group in May
2016, as part of our preparation for our commercial launch, we have
built up inventory of $0.4 million as at 30 June 2016.

Cash on hand at 30 June 2016 was $42.8 million (31 December 2015: $16.6
million). The increase in cash is primarily due to the proceeds received
on the placement completed in June 2016, offset by ongoing operating
expenditure. Total assets of the Group at period end were $44.0 million
(31 December 2015: $17.6 million).

Operating net cash out flows for the half year ended 30 June 2016 were
$7.5 million (30 June 2015: $5.7 million). This operating cash out flow
reflects the cost of the research and development of ReActiv8,
undertaking our clinical trials, preparation for our commercial launch,
the ongoing costs of being a public company, and running the Group. The
increase during the half year ended 30 June 2016 is primarily due to
increased operating expenditure.

Principal risks and uncertainties

The principal risks and uncertainties faced by the Group and/or its
industry for the remaining six months of 2016 remain substantially
unchanged from the risks disclosed in the Prospectus published on 11
August 2016. Section D1 of the Summary Document of the Prospectus sets
out on pages 12 and 13 some key information on the key risks specific to
the Company and its industry.

Outlook and future developments

We look forward to ramping up the ReActiv8-B Clinical Trial and our
commercial launch of ReActiv8 in Germany.

Related party transactions

Refer to note 14.

Going concern

The condensed consolidated Financial Statements have been prepared on
the basis that the Group is a going concern.

To fund the clinical trials and commercialization of ReActiv8 the Group
has raised debt and equity and it continues to explore funding
strategies (e.g.: equity, debt, partnering) to support the Group’s
activities into the future. As at 30 June 2016, following a private
placement which generated gross proceeds of €30 million (approximately
$33.7 million), the Group has reported cash of $42.8 million and the
last tranche of the IPF debt facility of $4.5 million was received by
the Group in July 2016.

After making enquiries and having considered the conditions noted above
and the options available to the Group, the Directors are satisfied that
Group will have sufficient funds to be able to meet its liabilities as
they fall due for a period of at least 12 months from the date of the
condensed consolidated Financial Statements and are satisfied that the
condensed consolidated Financial Statements should be prepared on a
going concern basis.

Auditors

The condensed consolidated Financial Statements have not been reviewed
by the Company’s auditors.

Mainstay Medical International plc

Directors’ responsibilities statement

Statement of the Directors in respect of Half Year Financial Report

Each of the Directors of the Company (the “Directors”), whose names and
functions are listed in the Corporate and Shareholder Information,
confirm that, to the best of each person’s knowledge and belief:

(a) the condensed consolidated Financial Statements comprising the
condensed consolidated statement of profit or loss and other
comprehensive income, the condensed consolidated statement of financial
position, the condensed consolidated statement of changes in equity, the
condensed consolidated statement of cash flows and related notes 1 to 15
have been prepared in accordance with IAS 34 Interim Financial
Reporting as adopted by the EU.

(b) the interim management report includes a fair review of the
information required by:

a. Regulation 8(2) of the Transparency (Directive 2004/109/EC)
Regulations 2007, being an indication of important events that have
occurred during the first six months of the financial year and their
impact on the condensed consolidated Financial Statements; and a
description of the principal risks and uncertainties for the remaining
six months of the year; and

b. Regulation 8(3) of the Transparency (Directive 2004/109/EC)
Regulations 2007, being related party transactions that have taken
place in the first six months of the current financial year and that
have materially affected the financial position or performance of the
entity during that period; and any changes in the related party
transactions described in the last annual report that could do so.

On behalf of the Board on 20 September 2016,

Oern Stuge MD

Peter Crosby

Chairman

CEO

Mainstay Medical International plc

Condensed consolidated statement of profit or loss and other
comprehensive income for the half year ended 30 June 2016

($'000)

Notes

Half year ended 30 June 2016

Half year ended 30 June 2015

Unaudited

Unaudited

Revenue

-

-

Operating expenses

4

(7,987)

(6,280)

Operating loss

(7,987)

(6,280)

Finance income

5

-

-

Finance expense

5

(784)

(15)

Net finance expense

(784)

(15)

Loss before income taxes

(8,771)

(6,295)

Income taxes

7

(71)

(61)

Loss for the half year and comprehensive loss for the half year

(8,842)

(6,356)

Net loss attributable to equity holders

(8,842)

(6,356)

Basic and diluted loss per share (in $)

6

(1.98)

(1.48)

The accompanying notes form an integral part of these condensed
consolidated Financial Statements.

Mainstay Medical International plc

Condensed consolidated statement of financial position at 30 June 2016

($'000)

Notes

30 June 2016

31 December 2015

Unaudited

Unaudited

Non-current assets

Property, plant and equipment

209

242

Current assets

Prepayments and other receivables

552

661

Inventory

8

381

-

Income tax receivable

127

70

Cash and cash equivalents

42,768

16,624

Total current assets

43,828

17,355

Total assets

44,037

17,597

Equity

Share capital

10

64

61

Share premium

10

106,322

72,588

Undenominated capital reserve

49,273

49,273

Share based payment reserve

12

3,633

2,691

Reorganization reserve

(44,573)

(44,573)

Retained loss

(84,711)

(74,816)

Surplus on shareholders' equity

30,008

5,224

Non-current liabilities

Loans and borrowings

9

9,283

10,084

Total non-current liabilities

9,283

10,084

Current liabilities

Loans and borrowings

9

1,445

305

Income tax payable

29

17

Trade and other payables

3,272

1,967

Total current liabilities

4,746

2,289

Total liabilities

14,029

12,373

Total equity and liabilities

44,037

17,597

The accompanying notes form an integral part of these condensed
consolidated Financial Statements.

Mainstay Medical International plc

Condensed consolidated statement of changes in shareholders’ equity
for the Period ended 30 June 2016

($'000)

Share capital

Share premium

Undeno-minated capital reserve

Reorgani-zation reserve

Share based payment reserve

Retained loss

Total equity

Un-audited

Un-audited

Un-audited

Un-audited

Un-audited

Un-audited

Un-audited

Balance as at 1 January 2015

61

72,584

49,273

(44,573)

1,162

(61,581)

16,926

Comprehensive loss for the half year

-

-

-

-

-

(6,356)

(6,356)

Transactions with owners of the Company:

Share based payments

-

-

-

-

814

-

814

Balance at 30 June 2015

61

72,584

49,273

(44,573)

1,976

(67,937)

11,384

Comprehensive loss for the half year

-

-

-

-

-

(6,879)

(6,879)

Transactions with owners of the Company:

Share based payments

-

-

-

-

715

-

715

Issue of shares on exercise of share options

-

4

-

-

-

-

4

Balance at 31 December 2015

61

72,588

49,273

(44,573)

2,691

(74,816)

5,224

Balance as at 1 January 2016

61

72,588

49,273

(44,573)

2,691

(74,816)

5,224

Comprehensive loss for the half year

-

-

-

-

-

(8,842)

(8,842)

Transactions with owners of the Company:

Issue of shares

3

33,725

-

-

-

(1,053)

32,675

Share based payments

-

-

-

-

942

-

942

Issue of shares on exercise of share warrants

-

9

-

-

-

-

9

Balance at 30 June 2016

64

106,322

49,273

(44,573)

3,633

(84,711)

30,008

The accompanying notes form an integral part of these condensed
consolidated Financial Statements.

Mainstay Medical International plc

Condensed consolidated statement of cash flows for the Period ended
30 June 2016

($'000)

Notes

Half year ended 30 June 2016

Half year ended 30 June 2015

Unaudited

Unaudited

Cash flow from operating activities

Net loss for the half year

(8,842)

(6,356)

Add/(less) non-cash items

Depreciation

54

24

Finance expense

5

784

15

Share-based compensation

12

942

814

Add/(less) changes in working capital

Prepayments and other receivables

(273)

(56)

Trade and other payables

293

(57)

Taxes paid

(114)

(73)

Interest paid

(389)

-

Net cash used in operations

(7,545)

(5,689)

Cash flow from investing activities

Acquisition of property and equipment

(21)

(64)

Net cash used in investing activities

(21)

(64)

Cash flow from financing activities

Gross proceeds from issue of shares

10

33,737

-

Transaction costs on issue of shares

10

(27)

-

Net cash from financing activities

33,710

-

Net increase/(decrease) in cash and cash equivalents

26,144

(5,753)

Cash and cash equivalents at beginning of year

16,624

18,283

Cash and cash equivalents at 30 June 2016

42,768

12,530

The accompanying notes form an integral part of these condensed
consolidated Financial Statements.

Mainstay Medical International plc

Notes to the condensed consolidated Financial Statements

1General information and reporting entity

Mainstay Medical International plc (the “Company”) is a company
incorporated and registered in Ireland. Details of the registered
office, the officers and advisers to the Company are presented on the
Corporate and Shareholder Information page.

The Half Year Report and condensed consolidated Financial Statements for
the periods ended 30 June 2016 and 30 June 2015 comprise the results of
the Company and of its subsidiaries (together the “Group”).

The Company’s shares are quoted on Euronext Paris and ESM of the Irish
Stock Exchange.

Mainstay is a medical device company focused on bringing to market
ReActiv8®, an implantable neurostimulation system to treat
disabling Chronic Low Back Pain (“CLBP”).

2Basis of preparation

Statement of compliance

The condensed consolidated Financial Statements have been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by the EU.
They do not include all the information and disclosures necessary for a
complete set of IFRS Financial Statements. However, selected explanatory
notes are included to explain events and transactions that are
significant to an understanding of the changes in the Group’s financial
position and performance since the last annual consolidated financial
statements as at and for the year ended 31 December 2015.

The comparative information provided in the condensed consolidated
Financial Statements relating to the periods ended 30 June 2015 and 31
December 2015 does not comprise the statutory financial statements of
the Group. Those statutory financial statements for the year ended 31
December 2015 on which the auditors gave an unqualified audit opinion,
have been delivered to the Registrar of Companies.

The half year ended 30 June 2016 is the first period in which the Group
has recognized inventory, following CE Marking approval for the Group’s
product in May 2016. Therefore, except for estimates of provision for
inventories (refer to significant accounting policies below, and note
8), there are no significant or material changes to judgements or
estimates used in these condensed consolidated Financial Statements
compared with those used in the full Financial Statements for the year
ended 31 December 2015.

The condensed consolidated Financial Statements were authorized for
issue by the Audit, Risk and Compliance Committee, as delegated by the
Board of Directors, on 20 September 2016.

Going concern

The condensed consolidated Financial Statements have been prepared on
the basis that the Group is a going concern.

To fund the clinical trials and commercialization of ReActiv8 the Group
has raised debt and equity and it continues to explore funding
strategies (e.g.: equity, debt, partnering) to support the Group’s
activities into the future. As at 30 June 2016, following a private
placement which generated gross proceeds of €30 million (approximately
$33.7 million), the Group has reported cash of $42.8 million and the
last tranche of the IPF debt facility of $4.5 million was received by
the Group in July 2016.

After making enquiries and having considered the conditions noted above
and the options available to the Group, the Directors are satisfied that
Group will have sufficient funds to be able to meet its liabilities as
they fall due for a period of at least 12 months from the date of the
condensed consolidated Financial Statements and are satisfied that the
condensed consolidated Financial Statements should be prepared on a
going concern basis.

Currency

The condensed consolidated Financial Statements are presented in US
Dollars (“$”), which is the functional and presentational currency of
the Company. Balances in the condensed consolidated Financial Statements
are rounded to the nearest thousand (“$’000”) except where otherwise
indicated.

Basis of consolidation

The condensed consolidated Financial Statements comprise the
consolidated results of Mainstay Medical International plc and its
subsidiaries.

Significant accounting policies

The condensed consolidated Financial Statements have been prepared
applying the accounting policies that were applied in the preparation of
the Group’s published consolidated financial information for the year
ended 31 December 2015 prepared in accordance with IFRS, as adopted by
the EU and available from the Company’s website (www.mainstay-medical.com).
These accounting policies have been applied consistently for all periods
presented. New accounting policies implemented during the half year
ended 30 June 2016 are listed below:

Inventories - Inventories are stated at the lower of cost and net
realisable value. The cost of inventories is based on the first in –
first out principle and includes expenditure in acquiring the
inventories and bringing them to their existing location and condition.
Net realisable value is the estimated selling price less the estimated
costs of completion and the estimated costs necessary to make the sale.
Provision is made, where necessary, for aged, slow moving, obsolete and
defective inventories.

In addition, the Group applied the standards listed below for the first
time in the current year:

The above listed new standards and amendments to standards with an
effective date of 1 January 2017 are not expected to have a material
impact on the Group.

The above listed new standards and amendments to standards with an
effective date after 1 January 2017 are under review by the Group.

3Segment reporting

Due to the current nature of the Group’s current activities, the Group
considers there to be one operating segment Active Implantable Medical
Devices (“AIMD”s). The results of the Group are reported on a
consolidated basis to the Chief Operating Decision Maker of the Group,
the Chief Executive Officer. There are no reconciling items between the
Group’s reported consolidated statement of profit or loss and other
comprehensive income and statement of financial position and the results
of the AIMDs segment.

The Group has operations in Europe, the US and Australia. The
non-current assets held in these jurisdictions are detailed below:

($'000)

30 June 2016

31 December 2015

Europe

167

207

United States

42

35

Australia

-

-

Total non-current assets

209

242

4Operating expenses

($'000)

Half year ended

30 June 2016

Half year ended

30 June 2015

Research and development expenses

1,588

1,219

Clinical and regulatory expenses

2,606

2,258

General and administration expenses

2,851

1,989

Share-based compensation expenses

942

814

Total operating expenses

7,987

6,280

5Net finance expense

($'000)

Half year ended

30 June 2016

Half year ended

30 June 2015

Finance income

Fair value gain on derivative financial instruments

-

-

Foreign exchange gain

-

-

Total finance income

-

-

Finance expense

Foreign exchange loss

(56)

(15)

Interest expense on borrowings

(728)

-

Total finance expense

(784)

(15)

Net finance expense

(784)

(15)

6Earnings per share

As the Group is incurring operating losses, there is no difference
between basic and diluted earnings per share.

Half year ended

30 June 2016

Half year ended

30 June 2015

Weighted average number of ordinary shares in issue

4,476,421

4,294,141

Loss per share

1.98

1.48

7Taxes

Current income tax assets and liabilities for the current and prior
periods are measured at the amount expected to be recovered from or paid
to the relevant taxation authorities. The tax charge has been prepared
based on the Group’s best estimate of the weighted average tax rate that
is expected for the full financial year. The tax rates and tax laws used
to compute the amount are those used in Ireland, the United States and
Australia.

($'000)

Half year ended

30 June 2016

Half year ended

30 June 2015

Income tax in Ireland

-

-

Income tax in other jurisdictions

71

61

Total income tax charge

71

61

8Inventory

($'000)

Half year ended

30 June 2016

Half year ended

30 June 2015

Finished goods

381

-

Inventories

381

-

There were no provisions netted against inventory as at 30 June 2016.

9Interest bearing loans and borrowings

IPF Debt Financing

On 24 August 2015, Mainstay Medical Limited entered into an agreement
with IPF Partners for a debt facility of up to $15 million. The facility
can be drawn in three tranches. Each tranche has a repayment term of 60
months from drawdown, with interest only payments for the first 12
months.

The initial tranche (“Tranche A”) of $4.5 million was received on 9
September 2015. The interest rate on Tranche A is 3-month Euribor plus a
margin of 12.5%.

A second tranche (“Tranche B”) of $6 million was received on 3 December
2015. The interest rate on Tranche B is 3-month Euribor plus a margin of
11.5%.

Other expenses directly associated with the facility of $353,412 were
deferred and are amortized to profit or loss over the term of the loan
on an effective interest rate basis.

The facility is secured by way of fixed and floating charges over the
assets and undertakings of Mainstay Medical Limited, and the Mortgage
Debenture includes customary terms and conditions. In addition, Mainstay
Medical International plc has created a first fixed charge in favor of
IPF over its present and future shares held in Mainstay Medical Limited.

The terms of the agreement include a requirement that Mainstay Medical
Limited hold a minimum cash balance of $2 million, or achieve revenue
targets within an agreed timeframe. It also includes monthly and
quarterly reporting requirements. The Group is not in breach of any
covenants at 30 June 2016 and has not been in breach at any reporting
date.

($'000)

30 June 2016

31 December 2015

Loans and borrowings - current

Term loan

1,275

225

Deferred finance cost

(71)

(71)

Accrued interest

241

151

Total current loans and borrowings

1,445

305

Loans and borrowings – non-current

Term loan

9,225

10,275

Deferred finance cost

(161)

(248)

Accrued interest

219

57

Total non-current loans and borrowings

9,283

10,084

Total loans and borrowings

10,728

10,389

10Called up share capital

The Company’s ordinary shares are quoted in Euro and have been
translated in US Dollars at the rates prevailing at the date of issue.

On 2 May 2014, the Company listed its ordinary shares on the ESM of the
Irish Stock Exchange and on 5 May 2014, the Company listed its ordinary
shares on Euronext Paris.

Authorized and Issued Share Capital

Authorized

30 June 2016

€

31 December 2015

€

20,000,000 ordinary shares of €0.001 each

20,000

20,000

40,000 deferred shares of €1.00 each

40,000

40,000

60,000

60,000

Issued, called up and fully paid

2016

$

2015

$

6,607,000 (31 December 2015: 4,298,203) ordinary shares of €0.001
each

8,549

5,954

40,000 deferred shares of €1.00 each

55,268

55,268

63,817

61,222

In $’000

64

61

Details of movement in issued shares:

During the year ended 31 December 2015, 4,062 options over ordinary
shares were exercised by the holders and the Company issued 4,062
ordinary shares. Proceeds of $4,062 were received on issue of the shares.

During the half year to 30 June 2016, 1,103 warrants over ordinary
shares were exercised by the holders and the Company issued 1,103
ordinary shares. Proceeds of $8,493 were received on issue of the shares.

On 17 June 2016, raised gross proceeds of €30 million (approximately
$33.7 million) through a placement of 2,307,694 new ordinary shares.
This issuance of new ordinary shares was recorded in the Statement of
Financial Position in USD at the rate ruling on the date of the
transaction. Transaction costs directly attributable to the issue of the
new ordinary shares, of approximately $1 million, have been offset
against retained earnings (in accordance with the Company’s Act 2014).

Movement of shares

Number of shares

Ordinary shares

Deferred shares

At 1 January 2015

4,294,141

40,000

At 30 June 2015

4,294,141

40,000

Issue of ordinary shares on exercise of share options

4,062

-

At 31 December 2015

4,298,203

40,000

At 1 January 2016

4,298,203

40,000

Issue of shares

2,307,694

-

Issue of ordinary shares on exercise of share warrants

1,103

-

At 30 June 2016

6,607,000

40,000

Movement of shares

$’000

Share capital

Share premium

At 1 January 2015

61

72,584

At 30 June 2015

61

72,584

Issue of ordinary shares on exercise of share options

-

4

At 31 December 2015

61

72,588

At 1 January 2016

61

72,588

Issue of shares

3

33,725

Issue of ordinary shares on exercise of share warrants

-

9

At 30 June 2016

64

106,322

11Financial instruments

Financial risk management

In terms of financial risks, the Group has exposure to credit risk,
liquidity risk and market risk (comprising foreign currency risk and
interest rate risk). This note presents information about the Group’s
exposure to each of the above risks together with the Group’s
objectives, policies and processes for measuring and managing those
risks.

Risk management framework

Mainstay’s Board of Directors has overall responsibility for the
establishment and oversight of the Group’s risk management framework.
The Group’s risk management policies are established to identify and
analyze the risks faced by the Group, to set appropriate risk limits and
controls and to monitor risks and adherence to the limits. Risk
management systems and policies will be reviewed regularly as the Group
expands its activities and resource base to take account of changing
conditions.

Due to the current pre-revenue nature of the Group’s activities, there
are no significant concentrations of financial risk other than
concentration of cash with individual banks and there has been no
significant change during the half year, or since the end of the half
year to the types or quantum of financial risks faced by the Group or
the Group’s approach to the management of those risks.

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet contractual
obligations, and arises principally from the Group’s cash and cash
equivalents.

The maximum credit risk is represented by the carrying value of cash
held with the Group’s financial institutions. The Group’s objective is
to minimize credit risk.

The Group maintained its cash balances with its principal financial
institutions throughout the half year, and the Group limits its exposure
to any one financial institution by holding cash balances across a
number of financial institutions. The Group’s principal financial
institutions have investment grade ratings at 30 June 2016.

The credit rating status of the Group’s principal financial institutions
is reviewed by the Audit Committee or the Board annually. The cash
balance is reported to the Board of Directors on a monthly basis, and a
monthly review of all cash balances held at each institution is carried
out by the CFO.

The Group maintains the majority of its cash in USD denominated
accounts. Approximately $3,000 was held in AUD as at 30 June 2016 and
approximately $300,000 was held in Euro as at 30 June 2016.

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its
financial obligations as they fall due.

Since inception the Group has funded its operations primarily through
(i) the issuance of equity securities and (ii) debt funding. The Group
continues to explore funding strategies (e.g.: equity, debt, partnering)
to support its activities into the future. Adequate additional financing
may not be available on acceptable terms, or at all. The Group’s
inability to raise capital as and when needed would have a negative
impact on the Group’s financial position and its ability to pursue its
business strategy.

Foreign currency risk

The Group’s reporting currency is the US Dollar. The Group’s exposure to
foreign currency risk arises through expenditure incurred in Euro and
Australian Dollars.

The Group’s Australian subsidiary has an Australian Dollar functional
currency. Mainstay Medical Distribution Limited and Mainstay Medical
GmbH have a Euro functional currency. The translation differences
related to the consolidation of these subsidiaries are not material.

The Group did not have material asset or liability amounts in foreign
currencies at 30 June 2016 other than trade payables and accruals (net
of cash) of €1,527,000 and AU$201,000. A strengthening (or weakening) of
the US Dollar against the Euro of 5% would have (decreased)/ increased
the loss for the period by $84,000 (2015: $1,000). Any reasonable or
likely movement between the US Dollar and the Australian Dollar is
considered not likely to have a material impact on the Group’s statement
of profit or loss and other comprehensive income.

Interest rate risk

The Group’s cash balances are maintained in short term access accounts
and carry a floating rate of interest. A 50 basis points change in the
rate of interest applied to the cash balance held by the Group would not
have had a material impact on the Group’s statement of profit or loss in
the half year.

At 30 June 2016, the principal outstanding on MML’s loan from IPF was
$10,500,000. This loan carries a variable rate of 3-month Euribor plus a
margin ranging from 11.5% to 12.5%. The terms of the debt agreement
stipulate that if Euribor is less than zero, it is deemed to be zero.
Any change in the Euribor rate above zero will directly affect the
amount of interest repayable on this debt.

A 25 basis point increase in Euribor above zero would have increased the
loss for the period by $13,125.

12Share based payments

Share Options

The terms and conditions of the Group’s share option plan are disclosed
in the most recent, published, consolidated financial statements. The
charge of €0.9 million for the half year ended 30 June 2016 (30 June
2015: $0.8 million) is the grant date fair value of various share
options granted in the current and prior years, which are being
recognized within the statement of profit or loss and other
comprehensive income over the vesting period related to service.

Warrants

On 2 December 2011, Silicon Valley Bank provided the Company with a loan
of $2,000,000, the loan was repaid in full on 7 March 2014.

In connection with these borrowings, MML issued immediately exercisable
warrants to purchase up to 13,000 shares at $7.70 per share with an
expiration date of 2 December 2021. The fair value of these warrants on
the date of issue was $69,000.

As at 30 June 2016 11,897 warrants were outstanding.

13Contingencies

The Directors and management are not aware of any contingencies that may
have a significant impact on the financial position of the Group.

14Related party transactions

During the half year ended 30 June 2015, the Group purchased services of
$33,364 from Orsco Life Sciences AG, a company controlled by Oern Stuge
MD, a Director of Mainstay Medical International plc. This agreement was
terminated on 31 December 2015.

There were no balances due to or from related parties as at 30 June 2016
and 31 December 2015.

Key management compensation and Directors’ remuneration

The Group defines key management as its non-executive directors,
executive directors and senior management. Details of remuneration for
key management personnel are provided below:

($'000)

30 June 2016

30 June 2015

Salaries

715

679

Non-executive directors’ fees

108

31

Other remuneration

512

389

Payroll taxes

63

60

Share based payments

788

645

Pension

11

11

Total remuneration

2,197

1,815

15Events subsequent to 30 June 2016

As referred to in the Interim Management Report, the Group received the
last tranche of the IPF debt facility ($4.5 million) during July 2016.

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